Can I Remortgage a Help to Buy Equity Loan?
You can, and the best option is to consult an expert broker who understands the process.
Quite often, the equity loan remains as is, and the mortgage is switched to a new lender. At this stage, you need to know what the LTV ratio is, to apply for the most competitive remortgage products.
If you have an H2B mortgage, you'll usually have paid at least a 5% deposit, with a loan of up to 20% of the property value. Most applicants have a repayment mortgage in place for the other 75% of the purchase cost.
Most mortgages have an initial period of between two and five years. After this period, you can choose to stick with your lender or remortgage elsewhere.
Steps to Remortgaging Help to Buy:
- Contact the Revolution Brokers team on 0330 304 3040.
- We agree a convenient time to have a chat with an H2B mortgage expert.
- They will recommend the best remortgages options for you.
- Your advisor will collate the documents and information, and make the remortgage application for you.
- Help to Buy administrators charge an admin fee.
- The property needs to have a valuation carried out, paid for by yourself if repaying a Help to Buy loan.
- You receive your formal mortgage offer.
- Once agreed and signed, your solicitor takes over, and switches your provider.
- All done!
As an illustration:
- You bought a property worth £200,000, paying a 5% £10,000 deposit. You took out an H2B equity loan of 20% for £40,000, and have a mortgage for the other 75% at £150,000.
- Two years later, you have paid off £10,000 of the mortgage, and want to remortgage with a lower interest rate.
- Over the last two years, the property has increased in value to £215,000.
- Your new property value is £215,000, the equity loan is worth £43,000, the mortgage balance is £140,000, and you own £32,000 equity in your property.
In this scenario, a Help to Buy remortgage lender will see a 65% LTV loan, which is lower risk than the 75% LTV mortgage when you bought the property two years ago.
Therefore, you are very likely to achieve a cheaper remortgage rate and reduce your repayment costs.
How Does the Mortgage Guarantee Scheme Work with Help to Buy Remortgages?
Mortgage Guarantee H2B mortgages differ in that they consist of a 95% mortgage, without any equity loan element.
This scheme allowed lenders to buy a guarantee, protecting them from risk, up to 80% of the value of the property. Each guarantee lasts for seven years.
As Mortgage Guarantees were capped at 95% LTV, they won't tend to get as good remortgage rates as Help to Buy remortgages which will all be at 75% LTV or lower.
However, Revolution Finance Brokers work with a growing number of lenders offering 95% LTV remortgages, with rates becoming more competitive all the time.
Is my Equity Loan Repaid with a Help to Buy Remortgage?
Usually, the equity loan remains in place after you remortgage, or you can choose to repay it.
The equity loan attracts interest every year, from five years onwards, until it is repaid. If you choose to repay your equity loan partially, you will need to pay around £115 in administrative fees to Help to Buy.
How Can I Repay my Help to Buy Equity Loan?
You can repay your H2B equity loan, in full or in part, but the minimum repayment is 10% of the property value.
There is an admin charge of around £115 to repay some of the loan or a £200 cost for complete repayment.
Revaluing a Help to Buy Property
When remortgaging or repaying a Help to Buy loan, you must cover the cost of a property revaluation.
Remember that this isn't the same valuation as for your remortgage, and so the valuation figures will impact how much you can borrow.
Will a Remortgage Enable me to Repay a Help to Buy Loan?
Yes, you can release equity to repay an H2B loan, and use a remortgage to help you do so.
Repaying H2B Loans - In Full, or Part
The percentage of the property value used to calculate the equity loan repayment relies on the current valuation.
If you decide to repay some of the loan, it must be at least 10% of the property value - and you can choose to repay it in full if you wish.
In our previous illustration, with a property now worth £215,000 with an equity loan of £40,000, the mortgage outstanding is £140,000 and you own £35,000 in equity.
You would need to borrow £140,000 to remortgage your current mortgage, plus £43,000 to repay the equity loan in full, so a total remortgage value of £183,000.
Based on the property value of £215,000, that would be an LTV just above 85%, and you would have plenty of lenders to choose from at that level.
Is it Best to Pay Off a Help to Buy Equity Loan?
It is up to you - if you remortgage, you do not need to repay your Help to Buy loan. In some cases, it is better to repay more of your mortgage, rather than repay the loan, and certainly if you are in the first five years of the term.
If you are in year six of your H2B loan, you'll only be paying 1.75% interest, which increases annually.
Assuming your mortgage rate is higher, it is more cost-effective to keep repaying your mortgage, rather than use your funds to repay an equity loan charged at a lower interest rate.
The challenge is when retaining a Help to Buy equity loan, finding a mortgage lender who offers H2B remortgages.
There are a smaller number of lenders offering this sort of product, and refinancing can be more expensive. However, an experienced broker can negotiate competitive rates on your behalf.
Remember that if you keep your equity loan, the repayments will need to be included in your expenses when calculating your affordability levels.
If you have held your H2B loan for longer, and the interest rates are getting higher, it is often cheaper to repay this and pay mortgage interest rates on the lending. This all depends on your circumstances, the value of your property, and the remortgage rates available.
What Interest Rates Do I Pay on Help to Buy Lending?
Here are indicative interest rates payable on Help to Buy loans within the first ten years of property ownership.
|
Year
|
Estimated RPI + 1%
|
Help to Buy loan interest
|
|
One
|
6%
|
0%
|
|
Two
|
6%
|
0%
|
|
Three
|
6%
|
0%
|
|
Four
|
6%
|
0%
|
|
Five
|
6%
|
0%
|
|
Six
|
6%
|
1.75%
|
|
Seven
|
6%
|
1.86%
|
|
Eight
|
6%
|
1.97%
|
|
Nine
|
6%
|
2.08%
|
|
Ten
|
6%
|
2.21%
|
How Do Help to Buy Remortgages Calculate Affordability?
Every remortgage lender will need to make sure you can afford the repayments.
Affordability considers what you earn, and how much you spend - and each lender uses a different calculation to arrive at the maximum they will lend.
If you are not repaying your Help to Buy equity loan, the interest payments will be included in the affordability calculations.
Generally, lenders will offer around three or four times your annual income. Revolution Brokers works with niche providers who can lend higher, even up to six times your income.
Each lender also takes a different attitude about including bonuses, commissions or overtime in your income calculations, which makes a significant difference to your remortgage offer.
Illustration:
- You earn £50,000 per year, plus a bonus of £30,000.
- Lender A includes 50% of your bonus and lends up to four times annual income. They offer a maximum mortgage of £260,000.
- Lender B includes 100% of your bonus and lends up to five times annual income. They offer a maximum mortgage of £400,000.
You can see how it makes a considerable difference which lender you apply to, as the same applicant could be offered very different mortgage limits, owing to the calculation bases used by each lender.
Can I Remortgage an H2B Loan if I am Self-Employed?
You can, although it is usually best to work with a specialist lender, and to consult a broker particularly if you have been self-employed for a year or less.
Most lenders will need to see your trading history, but again it is also vital to apply to a lender who takes the right view in using your income to calculate their maximum lending.
For example, some lenders will only consider your salary and dividends, but others will include any profit you have left in the business.
Illustration:
- You are the sole owner of a limited company, and earn a £10,000 directors salary.
- The business made £150,000 net profit, but you drew £40,000 in dividends and left the rest of the cash in the company.
- Lender A only includes your salary and dividends and lends up to five times annual income. They offer a maximum mortgage of £250,000.
- Lender B includes the profit retained in the business and lends up to five times annual income. They offer a maximum mortgage of £750,000.
Can I Remortgage Help to Buy as a Contractor?
You can, and specialist lenders offer contractor mortgages designed explicitly for CIS scheme workers.
These tend to take your day rate, and use that to work out your annual income, assuming you work five days per week and 46 weeks per year.
Illustration:
- You earn £600 per day, which is calculated as £3,000 per week.
- Your annual income is based on 46 weeks per year, or a total of £138,000.
Are There Age Limits on Help to Buy Remortgages?
Lenders will usually consider a minimum age of 18, and may have upper age limits, or no restrictions at all depending on their lending policies.
Many mainstream remortgage providers will have a maximum age at application or a maximum age at the end of the mortgage term.
Specialist lenders are less concerned with age, and more with making sure you can afford to keep up with the repayments.
Can I Get a Help to Buy Remortgage with Bad Credit History?
You can - although if you have an adverse credit history, you must work with a broker who can negotiate remortgage terms with a niche bad credit lender. You can still borrow as high as 90% LTV, provided you apply to the right lender.
Each lender will want to know what credit issues you have experienced, and when they happened.
The older and less severe the credit problems, the more competitive your remortgage rate.
For support with structuring your Help to Buy remortgage, and to compare the costs of repaying an equity loan or taking out new mortgage lending, give us a call on 0330 304 3040 or send a message to [email protected].
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2023-05-09 
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